Chipotle rewards program helps bring back loyal customers

Chipotle’s new summer loyalty program has dramatically improved the chain’s same-store sales and traffic in July, just three weeks after launch, executives of parent company Chipotle Mexican Grill Inc. said Thursday.

The company reported a same-store sales decline of 23.6 percent in the second quarter ended June 30, including a 19-percent drop in traffic. Wall Street analysts expected declines of about 20 percent.

But in a call Thursday with analysts, Chipotle founder, chairman and co-CEO Steve Ells said the launch of the new Chiptopia loyalty program on July 1 is likely a significant driver, as the beleaguered chain continues its battle to bring customers back after a series of foodborne illness outbreaks last year.

For the first half of July, same-store sales improved to negative 21 percent, with traffic down only 15 percent, a marked sequential improvement from June, when traffic was down 20 percent.

About 3.6 million customers have signed up for the loyalty program, Ells said, and it already accounts for about 30 percent of restaurant transactions.

Jack Hartung, Chipotle chief financial officer, said the loyalty program has dampened average check by nearly 3 percent in July versus June, in part because participants earn free food with frequent visits, and free guacamole and chips when they sign up.

Still, Hartung said the chain has seen a 90-percent increase in customers that visit 2.5 times per week or more, compared with June; a 200-percent increase in those who visit two to 2.5 times per week; and a 140-percent increase in those who visit between one and two times per week.

“So we’re off to a great start with Chiptopia so far,” he said. “We’d certainly like (the recovery) to be further along, but there are signs that the recovery is well on its way and continues to march along.”

Hartung added that Chiptopia, which ends in September, will likely be followed by another loyalty program. The company hasn’t decided yet whether it will be permanent.

During the call, Ells introduced Mark Shambura, the chain’s director of brand marketing, as filling in for chief creative and development officer Mark Crumpacker, who has been placed on leave of absence after being arraigned on drug charges last month.

In addition to Shambura, Crumpacker’s duties will also be picked up by Carolyn Anderson, executive director of facilities, construction and development; and Curt Garner, who was appointed chief information officer last year.

In the call, Shambura said the first half of the year was focused on promotions to get customers back into restaurants. The second half of the year, however, will be focused on Chipotle’s great food and winning back the most loyal customers more often.

“Based on data, we believe a majority of our most loyal customers have returned, but many of them are not coming as frequently as they used to,” Shambura said.

Marketing initiatives for the latter half of the year, for example, will include the traditional focus on sustainable ingredients without artificial flavors or preservatives.

But Chipotle will also communicate more about food safety, executives said.

Some analysts have criticized Chipotle’s decision not to include messages about its new, more rigorous food safety protocols in marketing efforts since the most recent outbreak of E. coli was declared officially over in February.

Monty Moran, Chipotle co-CEO, acknowledged that customers are looking for more information, but mostly they’re looking for “a longer time when nothing happens, and so far, so good on that.”

Meanwhile, Chipotle this month will complete the rollout of what Moran called an “industry-leading” traceability system that will allow the chain to better trace food items from supplier to restaurants using a bar-code system, similar to global package-delivery firms.

Ells added that some food safety procedures have been tweaked because of concerns they were hurting flavor.

Traditionally, bell peppers, for example, were chopped and sautéed in restaurants. After the outbreaks, food safety experts suggested that bell peppers be sliced in a central kitchen, tested and packaged, then delivered to restaurants. But Ells said they just didn’t taste as good that way.

Working with recently hired executive director of food safety James Marsden, Chipotle now blanches whole bell peppers in a central kitchen, which kills any potential pathogens but doesn’t cook the produce. Now peppers can be chopped and sautéed in restaurants again, and the flavor is as good as it was pre-crisis, Ells said.

Shambura said the recent release of an animated short, “A Love Story,” has also helped improve consumer perceptions of the brand. The video has been viewed 17 million times and is being shown in 10,000 movie theaters.

The introduction of chorizo as a protein option in some markets has also helped. Ells said chorizo now accounts for 6 percent to 7 percent of entrée sales where it is available.

Chorizo is expected to roll out across the 2,100-unit system by the end of the year, he said.

Since January, when same-store sales were down 36.4 percent following the crisis, Chipotle has recovered about 53 percent of transactions, Hartung said.

Restaurants in Ohio were showing the most recovery, with declines of only 12 percent in July, he noted.

In the West, however, where the E. coli outbreak was largely focused, and in the Northeast where a norovirus outbreak sickened hundreds, the recovery has been slower.